Most people saving for retirement understand that, as you age, you should consider transitioning from more aggressive to more conservative investing. It makes sense that as you get closer to retirement, you don’t want to risk losing your hard-earned savings to a sudden market downturn. Younger people have time to recover from losses—those in or near retirement might not.

Conservative savings strategies most often rely on “fixed income” investments such as bonds or bond funds to provide stability in a retirement portfolio. Historically, bonds have offered more conservative returns than individual stocks and stock mutual funds, but they may also be less volatile in an up-and-down market. That said, fixed income products are not without risk. A key risk to pay attention to in today’s environment is rising interest rates.

It may seem counterintuitive to see rising rates as a risk—you’re probably picturing more interest in your savings accounts—but bonds react differently. Generally speaking, when interest rates rise, and all other things being equal, bond values may decline. This means that the money you placed in bond funds as a safe, conservative option could actually lose value in a rising-rate environment.


 

It may seem counterintuitive to see rising rates as a risk—you’re probably picturing more interest in your savings accounts—but bonds react differently.

 


While it’s true that no one can predict when and in which direction interest rates will move, it’s also true that rates are currently near historic lows with little room to go but up. That’s why you might consider balancing your portfolio with conservative products where account values are not generally impacted by interest rate swings. One such product: fixed indexed annuities.

Fixed indexed annuities have the potential to offer returns comparable to—and in some cases better than—fixed income products, but without the market and interest rate risk affecting their value. If you’re concerned about rising interest rates negatively impacting your portfolio, ask your financial professional or insurance producer if a fixed indexed annuity is right for you.